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Pre-incorporation expenses

Vinit (Student) (50 Points)

12 August 2016

Hi,

Can someone tell me whether the pre-incorporation expenses are to be claimed in 5 years equally (balance showed in Misc. Exp. in Balance Sheet) or can it be taken as expense in the first year itself? Whether it is mandatory to do so? Need its reference as per accounting polices as well as Companies Act 2013.

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Amit Kanunga (Article Assistant and Post Gradute) (644 Points)
Replied 12 August 2016

Pre-incorporation Expense means all costs incurred in the formation of a firm (Incorporation or Registration of a company), it will include advertising, promotional activities, employee training, etc.,This includes all expenses like purchasing material, management expenses for formation etc. This expenses are shown under the head Misc Expenditure and are amortized over a period of 5 yrs as a deferred tax asset.

-- preliminary analysis of the conceived idea,
--detailed investigation in terms of technical feasibility and commercial viability to establish the soundness of the proposition,
-- preparation of ‘project report’ or ‘feasibility report’ and its verification through independent appraisal authority (before giving final approval to the proposition) and
-- organisation of funds, property and managerial ability and assembling of other business elements.